Italy’s 10-year BTP yield surged past 4.70%, reaching fresh three-year highs, as a deepening energy shock strengthened expectations of further ECB rate hikes. Following higher-than-expected inflation across major euro-area economies, markets are pricing in a third ECB rate hike by year-end and at least three hikes in 2027, pushing borrowing costs higher. Concerns over debt affordability in highly indebted countries such as Italy also reverberated, with the BTP-Bund spread rising to its highest since May 2025. Prime Minister Meloni plans to ask the EU for greater fiscal flexibility as high energy costs put pressure on inflation and government expenditure. Italy’s 2025 deficit was confirmed at 3.1% of GDP, above the EU’s 3% EDP ceiling and contrasting expectations of a downward revision to 2.9%. However, voluntary measures by energy majors operating in Italy to reduce fuel prices could provide some relief amid the country’s limited fiscal headroom ahead of next year’s general election.